Opportunity & Outlook for 2016
Krishna Memani, OppenheimerFunds’ Chief Investment Officer, opened the 2016 Research Symposium with a discussion of what he is looking for in 2016, both on a global basis and in the U.S.
Krishna offered his views on the issues that are top-of-mind for investors and affecting markets today, including:
- Volatility. U.S. Federal Reserve (Fed) monetary policy has been and continues to be the driving force behind global volatility. Unless the Fed changes course and gets off the tightening path, which Krishna believes it will, global markets will not stabilize and investors will have to contend with ongoing volatility in the months ahead.
- China. China faces significant structural challenges it will not solve in the short term or easily. However, China’s savings rate and human capital base, which is the best educated of any emerging markets nation, are positive factors that bode well. China’s economy is transitioning and will do so at its own pace, but the outcome will not be cataclysmic.
- U.S. recession. On the basis of the recent economic data flow, a U.S. recession in 2016 seems unlikely. According to Krishna, none of the underlying precursors to a recession – fast tightening by the Fed, massive amounts of credit growth, high inflation, overly rich equity valuations, and rapidly rising household debt levels – are evident.
Against this backdrop, Krishna’s long-term investment themes are:
- Interest rates will remain low for a long time to come due to a variety of structural reasons.
- Credit as an asset class is increasingly more attractive in a low-rate world and has the potential to be a good source of long-term income.
- Stock valuations are not cheap by historic measures, but are inordinately cheap relative to bonds and offer better long-term growth potential than bonds.
- The prolonged underperformance of global equities relative to U.S. equities is unlikely to continue much longer.
Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks.
Mutual funds are subject to market risk and volatility. Shares may gain or lose value.
These views represent the opinions of OppenheimerFunds and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.